31 Oct 2024Illegal building works create obstacles in property transactions
Property prices have soared in recent years, making real estate one of the most significant investments that most Australians will ever make. Whether buying or selling a property, the last thing anyone wants is to encounter unexpected legal or financial hurdles due to illegal building works.
Unapproved works can affect property values. Buyers may hesitate to purchase a property with unresolved building problems, and sellers may struggle to sell a property with illegal structures, potentially leading to financial losses.
Not all building works require approvals, but many do. It pays to be aware of your obligations to ensure you do not end up with illegal building works on your property. As a buyer, you need to ensure you undertake the necessary checks on the property you are hoping to buy.
In this article, our lawyers discuss some of their clients’ experiences with illegal building works on their property, or properties they were intending to buy.
What are illegal building works?
The term “illegal building works” refers to any construction, alterations or renovations carried out without the necessary approvals from local councils or certifying authorities. These works can include anything from home extensions and renovations, to building granny flats or minor structures like sheds and decks.
Even seemingly small projects can fall into this category if they don’t comply with regulations.
Illegal building works are often not undertaken maliciously, or even knowingly, but understanding the consents that may be required for the type of work you want to undertake is crucial to ensure your building work is compliant with the necessary rules and regulations.
Why approvals matter when building on your property
Governments require approvals to ensure that building works meet safety standards and comply with environmental and planning regulations. Unapproved structures may pose risks to occupants, visitors to the property and to neighbouring properties.
Property owners who proceed without approvals risk fines, legal action and even demolition orders, all of which are costly, stressful and time-consuming.
As illegal building works are often identified during the sales process, there can be significant financial repercussions that also arise, including losing the deposit because of a breach of contract, or having to withdraw from a sale.
Another major concern is that if someone is injured due to something on a property that was not approved by the council, it is possible that public liability insurance will not cover a claim made against you.
Strata schemes and owners corporations
Owners of apartments, townhouses or other dwellings that are part of a strata scheme should also ensure they inform and seek approval from the owners corporation (or body corporate) when planning building works.
The owners corporation is the legal entity controlling the common property within the strata scheme. It represents all owners in the strata scheme’s collective interests.
If approval for building works within the property is not received from the owners corporation, it can request that the owner of the property remove them.
Exempt development may not require approval
In NSW, most building and construction work on residential or commercial property requires some type of consent – generally a development application (DA) approval or a Complying Development Certificate (CDC).
However, there are some works you can undertake that do not require planning or construction approval from a council or private certifier, including some minor building renovations and low impact works.
These include decks, garden sheds, carports, fences, window repairs and house painting. (Please see Exempt Development, NSW Government, 13 March 2024.)
This type of building work is called “exempt development”, and while the work may not require approval, it still must be structurally adequate, installed in accordance with manufacturer’s specifications that comply with the Building Code of Australia (BCA), and meet all the standards identified in the state policy, State Environmental Planning Policy (Exempt and Complying Development Codes) 2008.
As there are very specific rules, even for these minor and low-impact works, it is always best to err on the side of caution and check with local council whether you need approval before commencing any building work.
What is complying development?
Complying development is a fast-track approval process for straightforward residential, commercial and industrial development, with approvals issued in as little as 20 days. (Please see Complying Development, NSW Government, 13 March 2024.)
This type of approval is generally for larger building works than those included under exempt development. The benefit of these fast-track approvals is that they are determined by council or an accredited certifier, without requiring a full DA, provided the proposal meets specific development standards.
Examples of complying development include building a one or two storey home, a granny flat, earthworks, fences, swimming pools, renovating a home and removing or pruning a tree, among others.
In NSW, If your renovations or building works are complying development (or require a development application through council), you may also need to apply for a BASIX certificate, which covers water, energy use and thermal performance. (Please see BASIX, NSW Government.)
It is recommended that you contact council about applying for a CDC (complying development certificate) and to confirm which documents are required.
Consequences of unauthorised building works
Councils generally become aware of illegal building works through community complaints or inspections. They also find out about such works when a property is being sold, and the prospective buyer requests documents that certify the renovations or works.
When a council becomes aware of unauthorised building works, it may issue notices to rectify the situation or impose penalties. Property owners must then either obtain retrospective approvals or rectify the works.
Costs can be significant, including professional fees, compliance certificates and potential modifications.
Furthermore, if this occurs during a property sale, it may result in the buyer withdrawing from the process, potentially resulting in further costs to the seller if they have to forfeit the deposit for a breach of contract.
Selling a property with illegal structures can be challenging, as buyers may negotiate a lower price or walk away altogether.
Two bedrooms or three? Buyers can rescind contracts for surprising reasons
In Huang & Anor v Ceylan [2018] NSWSC 306, an apartment owner had turned their two bedroom apartment into a three bedroom apartment by constructing a wall to enclose their media room.
During the sale process, as a result of inquiries made by a valuer who had been retained to value the property for finance purposes, the buyers learned that the approved development plan originally provided for only two bedrooms.
The council subsequently advised and later confirmed that the alteration of the plan did appear to require approval. Ultimately, it was found that it was a breach of an implied statutory warranty. Consequently, the buyers were entitled to rescind the contract of sale and have their deposit refunded in full.
Approvals, compliance and certification of completed works
For owners of property, understanding the rules around building approvals is vital. Always ensure you check with your local council before commencing any building work.
Seek professional advice if you are unsure, and ensure you obtain the right approvals, are compliant and have the proper certification at the end of the process.
Another thing you should always check is that your builder is licensed. It’s also prudent to confirm whether your builder is getting final certification, or whether that it is up to you.
Regardless of who obtains it, you need to make sure you get final certification from council. A well-informed approach protects your investment and avoids costly surprises down the track.
Careful attention to property boundaries
As a property owner, if you’re planning to build a fence or construct something along a property boundary, it’s crucial to have a survey done. Unfortunately, some people skip this step, which can and has led to houses and buildings being constructed over boundaries.
In such cases, you need to negotiate with the neighbouring property owner to adjust the boundary, and in some situations, the building may need to be demolished.
Tight competition creates disincentive for proper due diligence
For a buyer of property, it can be difficult to do due diligence on a property to identify illegal building works, particularly in a tight real estate market such as the one we are currently experiencing.
There is often a lot of competition for a property. This incentivises purchasers to compress the timeframes in the contract in the hope of winning the contest and sealing the deal.
Unfortunately, a building and pest report will generally not pick up illegal building works, and requesting searches from council can take too long for a buyer to remain in the running. Councils often take at least 14 days to provide records which have been requested.
It is advisable for property buyers to get a survey done to ensure the property or any buildings on it have been built within the property boundaries. While this can be an expensive exercise, it is probably cheaper than potentially having to pay later to adjust the boundary, or move the house or building.
A council search might not uncover illegal building works, especially if no prior permits were filed. While some cases clearly violate building codes, others are less obvious. Ultimately, buyers must weigh the risk when making one of life’s most significant purchases.
Case Study #1 – Council forces client to remove unapproved kitchen
Our client was selling his house, which he had renovated over the years. Among the work was a downstairs kitchen, for which he did not obtain the necessary approvals.
When the buyer conducted due diligence, they found the kitchen area was meant to be a storage area. Council subsequently inspected the property and forced our client to decommission the kitchen.
The buyer would not exchange contracts until final certification was given by council following the removal of the kitchen. This led to additional costs for our client, as well as a delay of 6-8 weeks before the sale could be completed.
Case Study #2 – New owner of strata unit forced to remove unapproved air conditioning
An apartment owner installed ducted air conditioning into his unit without seeking the necessary approvals, including from the owners corporation.
Not only was the work not approved by the owners corporation, but it had been conducted in the void above the ceiling of the unit, which was not a part of the owner’s property. Additionally, the work did not comply with the building code or fire regulations.
When the owner subsequently sold the apartment, and the owners corporation became aware of the air conditioning, they sought an order for the new owner to remove the unapproved work in the dwelling, costing them money.
If you are part of a strata scheme, always ensure you follow the proper process to get approval from the owners corporation before proceeding with building work on your dwelling.
Case Study #3 – Council issues demolition order for deck built over sewer main
A client built a deck without getting a survey done or seeking approval. Unfortunately, it was built over a sewer main and my client was issued with a demolition order for the deck.
He came to us to see what his options were, as he hoped to hire consultants to investigate and confirm that it was located over the sewer main and whether he could try to modify the sewer main and the easement.
Unfortunately, it is very difficult to get these things done, as the council had ordered a 30-day compliance, which did not give him time to find consultants to undertake the investigations.
It ended up being a very upsetting and expensive process for him.
Case Study #4 – Sale of residential property falls through due to uncertified staircase
We were acting for a potential purchaser of a residential property. When the building and pest inspection was done, the building inspector suspected the stairs in the property were not compliant with the building code and recommended further investigation.
We found there was a building approval, but no certification for the work. The owner of the property was forced to rectify the work, and our client ultimately chose to walk away.
The sale fell over, costing the owner the sale of the property as well as the costs of the rectification work.
Case Study #5 – Survey finds property encroachment and buyer abandons sale
A client wanted to buy a house and had a surveyor check the boundaries. The surveyor found it was built two metres on another property.
In the end, our client didn’t proceed with the purchase and the seller had to do a boundary adjustment after negotiations with the neighbour, costing them thousands of dollars.
Case Study #6 – Seller of property with jetty forfeits $50K due to fine print requirements
Our client had purchased a riverside property with a jetty. Their original solicitor noticed that the jetty license needed to be transferred, which required a separate application to the relevant authority.
The contract stipulated no settlement until the license was transferred. Just before settlement, the license transfer was granted, but the junior lawyer who received the approval did not read the fine print on the approval.
The contract settled and our client proceeded to spend heavily on renovations of the property.
Later, when selling, the new purchasers discovered the fine-print requirements stipulating that repairs had been needed on the jetty within 30 days of the approval as part of the licence transfer.
This, of course, had not happened, as our client had not been aware of the fine print. Negotiations ensued, but the repairs were very costly.
Our client ended up having to forfeit around $50k to the new buyers, as she couldn’t get the jetty approved in time.
Further reading
For more information please see the articles below.
New laws protect purchasers from risk of building defects in NSW
